CH – 10

Multinational companies: large business with significant production or service

operations in at least two different countries. E.g., McDonalds, Coca – Cola.

Key features of multinationals:

-> huge assets (land, buildings, machinery and etc.)
-> highly qualified and experienced professional executives and managers
-> powerful advertising and marketing capability
-> highly advanced and up to date technology
-> highly influential both economically and politically
-> very efficient since they can exploit huge economies of scale
-> ownership and control are centered in the host country (profit returns to the
host country)

How multinationals have developed:

1. Economies of scale:
Many companies developed into multinationals because larger companies enjoy lower
costs. This is because they can exploit economies of scale. Exploiting economies of
scale is an increase in the volume of production (that requires a constant expansion of
the size of the market) which then results in costs being reduced. Cost reduction is
achieved because costs are spread over a larger number of goods.

2. Marketing
Some companies developed into multinationals through effective marketing. Effective
marketing includes promoting brand awareness on the Internet via social media
platforms and search engines. McDonald’s is a good example. McDonald’s is a low-
tech firm that have developed a successful brand at home and then exploited it
globally. It faced a fierce competition by other fast – food outlets all over the world. But
it has probably protected its brand name with patents and used heavy and innovative
marketing to attract customers globally.
3. Technical and Financial Superiority
Most companies have developed into multinationals, enjoying superiority. They have,
developed and advanced technology, a huge bank of knowledge and also can afford to
invest in research and employ the most talented people available. They also have the
resources to take risks and diversify. As a result they can explore business ventures
(new business activities that involve taking risks).

Benefits to businesses of becoming a multinational:

-> larger customer base
-> lower costs
-> higher profile
-> avoiding trade barriers
-> lower taxes

Benefits of multinationals to a country/economy:

-> increase in income and employment
-> increase in tax revenue
-> increase in exports
-> transfer of technology
-> improvement in the quality of human capital
-> enterprise development